Volatile financial markets and credit concerns contributed to the smallest quarterly number of new hedge fund launches since 2000 in the first three months of this year, while fund liquida
Volatile financial markets and credit concerns contributed to the smallest quarterly number of new hedge fund launches since 2000 in the first three months of this year, while fund liquidations showed a 20 per cent increase from 2007 levels, according to industry information and performance data provider Hedge Fund Research.
The hedge fund industry saw 247 new funds launched in the first quarter of this year, down from 251 in the same period of 2007, according to HFR estimates, while the number of liquidations rose from 138 to 170. The attrition rate, defined as the proportion of funds liquidated over the total number at the beginning of the year, was 1.68 percent for the first quarter, up slightly from last year.
Single-manager hedge funds experienced the highest level of liquidations, with 155 funds shutting their doors during the first quarter. Equity hedge strategies saw the greatest turnover, accounting for more than half of all launches and liquidations. Macro, the top-performing strategy since the third quarter of 2007, accounted for a further 20 per cent of launches.
The launches and liquidations have taken place against a backdrop of essentially flat hedge fund performance, with the HFRI Fund Weighted Composite posting a gain of 0.11 per cent for first five months of the year and the broader-based HFRX Global Hedge Fund Index declining by 0.2 per cent up to mid-June.
‘Consistent with the theme of lower investor risk tolerance as a result of credit, equity market, and general economic weakness, there has been a decline in new capital commitments to the industry in 2008 and fewer new fund launches,’ says HFR president Kenneth J. Heinz.
‘Investors continue to express a preference for funds with established track records and significant infrastructure. As a result, firms with more than USD1bn under management hold nearly 87 per cent of total industry assets, a level consistent with recent quarters.’
According to HFR, the peak year for hedge fund launches and liquidations remains 2005, when 2,073 new funds were started and 848 funds closed down. Both launch and liquidation numbers have declined steadily since then, even as the firm estimates that industry assets under management have continued to grow, from USD1.1trn in 2005 to nearly USD1.9trn today.
HFR’s detailed data on industry launches and liquidations, as well as sub-strategy asset growth, analysis of service providers, fee structures and new managers, and industry performance dispersion, is published in a new report entitled HFR Market Microstructure Hedge Fund Industry Report.
Its data is based on more than 12,000 funds tracked historically by the firm, including more than 7,600 funds reporting as part of the HFR Database subscription product. At the end of March, HFR estimates, the entire industry contained more than 10,100 funds.
Founded in 1993, Chicago-based HFR Group is a provider of hedge fund data, research, indexation and asset management products and services, including the HFRI and HFRX indices of hedge fund industry performance.
